Renewable Energy Trade and Governance

Fukunaga, Yuka, Proceedings of the Annual Meeting-American Society of International Law

Among the various forms of energy, my presentation focuses on renewable energy. In particular, it discusses a WTO dispute between Japan and Canada, concerning Ontario's Feed-in Tariff Program (FIT Program). I begin with the factual background of the dispute, and then analyze relevant issues tinder the WTO Agreement. I conclude by discussing the implications of the dispute for governance in renewable energy trade.

FACTUAL BACKGROUND OF THE DISPUTE

Procedural History

The dispute concerning Ontario's FIT Program was first brought to the WTO dispute settlement system by Japan on September 13, 2010. After the consultations tailed to resolve the dispute, a panel was established at the request of Japan on July 20, 2011. The first substantive panel meeting with the parties was held on March 27 and 28, 2012. As of this writing, the final report of the panel is expected to be issued by September 2012.

Meanwhile, the EU requested consultations on the same matter on August 11, 2011, and it later requested the establishment of a panel. A panel was established on January 20, 2012. My presentation does not discuss the dispute between the EU and Canada, but the issues dealt with there are mostly identical to those in the one between Japan and Canada.

It is also worth noting that arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA) is underway over Ontario's FIT Program. Mesa Power Group LLC, a U.S. renewable energy development company in Ontario, has filed a notice of intent to submit a claim under Chapter 11 against Canada. Although my presentation does not address this investor-state dispute, it could be another illustrative example to show potential overlap between the WTO dispute settlement system and investment arbitration.

Measures at Issue

Ontario's FIT Program was introduced by the Green Energy and Green Economy Act, adopted in May 2009 in order to encourage the entrance of renewable energy producers into the electricity market. The scope of the Program includes a wide range of renewable energy powers, but Japan's complaint in the WTO focuses on solar power and wind power. The basic function of Ontario's FIT Program is similar to FIT programs in other areas in many aspects. It allows a solar or wind power producer to receive a power supply contract with a fixed rate during a fixed period for the electricity it produces. The fixed rate under the contract is generally higher than a market price for electricity. Put differently, the contract given under the Program guarantees that a solar or wind power producer receives a market price plus additional money for the electricity it produces.

What is unusual about Ontario's FIT Program is that it requires a solar or wind power producer to meet the domestic content requirement in order to receive a lucrative contract under the Program. In other words, a solar or wind power producer must use equipment or services domestically provided in Ontario for its power-generating facilities in order to receive additional money for the electricity.

Japan's Concerns Behind its Complaint

Given the relatively small number of WTO complaints brought by Japan, it merits consideration why the Japanese government came to bring a WTO complaint in this particular dispute. There are two principal reasons.

First, there is strong support by the solar panel industry in Japan for taking legal action in the WTO. Why does the industry support the action in the WTO dispute settlement system? The domestic content requirement of the FIT Program makes it difficult for Japanese companies, which do not have production sites in Ontario, to sell their solar panels there.

Besides, Japanese companies have been losing market share in the solar panel market especially because of the intensifying competition with Chinese solar panel producers. Moreover, the European market, which has been a major market for solar panel exports, is now shrinking because of the decrease of subsidies for renewable energy. …

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